Gazprom and CNPC broadening strategic cooperation in energy sector

A working meeting between Alexey Miller, Chairman of the Gazprom Management Committee, and Zhang Gaoli, Vice Premier of the State Council of the People’s Republic of China, took place today in Beijing.

The parties addressed key areas of strategic cooperation, expressing appreciation for the past and prospective collaboration between Gazprom and Chinese energy companies and financial organizations. Particular attention was paid to the projects for pipeline gas supplies from Russia to China.

Another working meeting was held today between Alexey Miller and Wang Yilin, Chairman of the Board of Directors of CNPC. The parties reviewed the progress of the project for gas deliveries from Russia to China via the eastern route, as well as the prospects for gas supplies via the western route and from Russia’s Far East. It was noted that the construction of the Power of Siberia gas pipeline (eastern route) was going according to schedule, with preparations underway for the construction of the cross-border section.

Welding of first joint at Power of Siberia gas pipeline. September 1, 2014

Alexey Miller and Wang Yilin underlined that the project for pipeline gas supplies from Russia’s Far East complemented and expanded the eastern route. Upon consideration of groundwork carried out on the main technical issues, the parties agreed today to start commercial negotiations on the project.

The meeting also touched upon the construction of the Amur GPP. The parties concluded the final negotiations aimed at engaging China Petroleum Engineering & Construction Corporation (a CNPC affiliate) in the project under an EPC contract for the construction of a booster compressor shop and gas dehydration and fractionation units.

Alexey Miller and Wang Yilin discussed the progress in the development of projects in the field of natural gas storage and signed the Agreement to conduct geotechnical surveys for the creation of UGS facilities. Pursuant to the document, it is planned to assess the geological, technological and economic conditions for creating underground gas storage facilities within the Shenzhen 2–1 field (Heilongjiang province), Chuzhou salt caverns (Jiangsu province), Baiju aquifers (Jiangsu province), and in other areas.

The parties addressed the prospects for joint projects in the field of gas-fired power generation in China and decided to complete preparatory work in 2017 in order to make the investment decision with regard to a pilot project.

The parties resolved to establish within the Joint Coordinating Committee of Gazprom and CNPC a new working group focused on staff development and experience sharing.

Another cooperation issue addressed at the meeting was the use of LNG as a vehicle fuel along the Europe – China international transport route.

“The strategic partnership between Gazprom and CNPC continues to advance. I am confident that Gazprom’s unique experience and enormous capacities will help China with its ambitious plans to develop the national gas market and secure demand for natural gas as well. By 2020, the share of natural gas in China’s energy mix is expected to grow from 6 per cent to 10 per cent. According to the plan, the need for gas imports may double by late 2020, reaching 150 billion cubic meters. As of today, we have an ongoing project with CNPC for gas supplies from Russia to China via the eastern route. The agenda is to complement it with another project for pipeline gas supplies from Russia’s Far East,” said Alexey Miller.

Background

In 2016, natural gas production in China totaled 137.1 billion cubic meters, with imports growing by 22 per cent to 75.2 billion cubic meters (pipeline gas accounting for 52 per cent) and consumption going up by 7 per cent to 205.8 billion cubic meters.

At present, natural gas makes up 6 per cent of China’s energy mix, with coal, oil and non-fossil fuel sources accounting for 62, 19 and 13 per cent, respectively. According to the Plan of the State Council of the People’s Republic of China, the share of natural gas will reach 8.3–10 per cent by 2020 and 12–15 per cent by 2030.

Pursuant to the targets set for the country’s gas industry in the 13th Five-Year Plan, by late 2020 natural gas supplies to the Chinese market (domestic production and imports) may climb to 360 billion cubic meters, with gas-fired power generation capacities totaling 110 GW (5 per cent of the overall power generation), GTS stretching for 104,000 kilometers, and the working capacity of UGS facilities expanding to 14.8 billion cubic meters.

CNPC is China's state-owned oil and gas company and one of the world's leading integrated energy companies.

In 2014, Gazprom and CNPC signed the Sales and Purchase Agreement for gas to be supplied via the eastern route (Power of Siberia gas pipeline). The 30-year Agreement provides for Russian gas deliveries to China in the amount of 38 billion cubic meters per year.

In 2015, Gazprom and CNPC inked the Heads of Agreement for pipeline deliveries of natural gas from Russia to China via the western route (Power of Siberia 2 gas pipeline) and the Memorandum of Understanding for the project of pipeline gas supplies to China from Russia’s Far East.

On June 25, 2016, Gazprom and CNPC signed the Memorandum of Understanding on underground gas storage and gas-fired power generation in China.

On November 7, 2016, Gazprom and CNPC signed the Agreement to cooperate in the field of mutual recognition of standards and conformity assessment results. The parties also signed the Memorandum to explore the opportunities for cooperation in the NGV sector. In addition, Gazprom and China Development Bank Corporation signed the Memorandum of Understanding in the field of project financing and other types of financing.